The Ultimate Guide to Chapter 13 Bankruptcy
Chapter 13 of the U.S. Bankruptcy Code is for those who are in financial difficulty but have enough income to clear certain debts in an agreed time frame. Property secured with a mortgage is protected. Unsecured creditors are paid in full or in part, in accordance with the debtor’s officially calculated disposable income.
Chapter 13 Bankruptcy Fees
A filing fee of $310 is paid in full or in 4 instalments. A counselling fee of approximately $100 is also required. Retaining a lawyer is strongly recommended since negotiating with creditors can be difficult and bankruptcy law complicated and confusing. This retainer can cost $3000 upfront or a substantial deposit can be paid with the rest paid over the cost of the plan.
Documents which require to be filed
“A Voluntary Petition” must be submitted requesting the discharge of debts.
This will include:
- contact and personal information
- creditors and debt information
- property owned
- bank statements
- wage stubs
- tax returns
- current monthly income and commitment period – either 3 or 5 years
- calculation of disposable income (after subtracting authorized expenses)
- repayment plan
- certificate of participation in a credit counselling program
- certificate showing residence and child support responsibilities
Repaying your debts
A repayment plan is submitted to a bankruptcy judge for approval. The plan will last for 3 or 5 years depending on income. Income must be sufficient to cover those debts which are secured with collateral e.g. house/car. The payments must be enough to cover any monies owed during the lifetime of the plan. They must also cover in full any arrears in these secured debts e.g. mortgage/car payments, child and ex-spouse maintenance payments and taxes owed to I.R.S.
After these mandatory debts are paid, any monies owed to unsecured creditors are calculated in accordance with approved disposable income. Some creditors will be paid in full, others in part, some perhaps not at all.
If the bankruptcy judge confirms the plan, an “Automatic Stay” comes into effect right away. This means that creditors must stop any debt recovery action immediately.
The judge will appoint a trustee who will arrange a meeting of creditors to discuss the repayment plan. The trustee receives a flat fee plus a percentage of all payments received by creditors. All repayments to creditors are now paid through this trustee.
The Confirmation Hearing
A few weeks after the creditors’ meeting, a confirmation meeting is held at which the judge will approve the proposed plan or ask for amendments. Once the plan is confirmed, payments will begin within 30 days. They are usually collected monthly directly from bank accounts or pay-checks.
When the last payment is made, a budget counselling course must be undertaken. This will explain basic budgeting, how to manage income and how to use credit responsibly. A participation form must be officially filed to the court in order to obtain a discharge. Assuming all legally binding debts have been paid, all other debts including credit charges outstanding will be discharged.
Now on to the important stuff. We’re next going to talk about your property in more depth including how to save your home during bankruptcy.